US-India Global Review

58 US-INDIA GLOBAL REVIEW JANUARY-MARCH 2018 The underlying socialist theory was that the market could not be trusted to produce good social outcomes, so the government in its wisdom must determine where the country’s scarce resources should be deployed and what exactly should be produced, in what location, and by whom. In other words, the people would be best served when they had no right to decide what to produce and no right to decide what to consume: that was all to be left to a benevolent government.2 In its first three decades after independence in 1947, the Indian economy averaged just 3.5 per- cent GDP growth, which was deri- sively called the “Hindu rate of growth.” That was half the rate achieved by the Asian tigers. Indian socialism reached its zenith in the 1970s, when the banks and several major indus- tries were nationalized. The top income tax rate rose to 97.75 per- cent, and the wealth tax to 3.5 percent. The Garibi Hatao (Abolish Poverty) slogan of Prime Minister Indira Gandhi (1969-77) aimed to cut fat cats to size and create a paradise for the poor. In fact, the poverty ratio did not fall at all until 1983. Meanwhile, the population had virtually doubled since independ- ence in 1947, meaning that the number of poor people virtually doubled in this socialist era. There could scarcely be a crueler demonstration of how policies in the name of the poor could end up impoverishing them even fur- ther. GDP growth improved to 5.5 percent in the 1980s because of some very modest liberalization plus a government spending spree. But the spending spree was unsustainable and ended in tears and empty foreign exchange reserves in 1991.3 P. V. Narasimha Rao became prime minister in 1991. The Soviet Union was collapsing at the time, proving that more socialism could not be the solution for India’s ills. Meanwhile, Deng Xiaoping had revolutionized China with market- friendly reforms. And so Indian politicians turned in the direction of the market too. India had no Thatcher or Reagan leading any ideological charge. Reform was very pragmatic, with Rao insisting he was pursuing a “middle path” and not a radical transformation. The Indian economy took two years to stabilize but then achieved record growth of 7.5 per- cent in the three years 1994-97. When the reforms began, all opposition parties had slammed them as a sellout to the International Monetary Fund (IMF). But when the outcome was record GDP growth, the objections melted away in practice even if not in rhetoric. Every successive gov- ernment that came to power con- tinued down the path of economic liberalization, despite some steps backward. The reforms were errat- ic and half-baked but not reversed.4 The Asian financial crisis of 1997-99 laid India low, yet it proved far more resilient than other Asian nations. Soon after came two droughts (in 2000 and 2002), the dot-com collapse and global recession of 2001, and the huge global uncertainty created in the run-up to the invasion of Iraq in 2003. The Indian economy sputtered in those difficult years, and average GDP growth slowed to 5.7 percent in 1997-2003. But then followed the global boom of 2003-8, spearheaded by China, which lifted all boats across the world. India’s GDP growth soared, and it reached a peak of over 9 percent per year in the three years 2005-8.5 The euphoria of those days has now dimmed. Many serious prob- lems arose after 2010-11, such as widespread charges of mass cor- ruption, which led to paralysis in decisionmaking; a collapse of the public-private partnership model for infrastructure; huge bank loss- es; huge losses from state elec- tricity boards giving massive sub- sidies and failing to check electric- ity theft; and major problems in land acquisition, environmental clearances, and other clearances, which led to delays that killed some capital-intensive projects. The economy slowed, and that plus the anticorruption public mood led to the crushing defeat of the Congress Party-led coalition in the 2014 election after a decade of mostly successful rule. The new government led by Narendra Modi of the Bharatiya Janata Party has sought to tackle some of the worst problems, and growth has picked up to an esti- mated 7.5 percent in 2015-16. That growth rate is slower than before, yet China has slowed even more dramatically to 6.5 percent. So India has become the fastest- The new government led by Narendra Modi of the Bharatiya Janata Party has sought to tackle some of the worst problems, and growth has picked up to an estimated 7.5 percent in 2015-16.